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Is Refinancing Right for You?

Refinancing your home mortgage can really save you money and ease the stress of loan payments on your monthly budget. You may be able to pay less interest, lower your monthly payment, switch from an adjustable rate to a fixed-rate mortgage, or convert from a 30-year loan to a 15-year loan (and build your equity faster). But before you run off and take action, be sure that refinancing is right for you!

Some key points to consider when determining if refinancing is right for you:

Length of Time You Will Be Staying in the House

To really take advantage of the benefits of a refinance, it is vital to time it correctly. The benefits of refinancing your home will take time to accrue so you need to make sure you are staying there long enough to break-even on the cost of refinancing. Determining how long it will take to break even will come in handy, especially if you don't plan on staying in your house for that long. For example, if the break-even point on your refinance is 5 years, and you only plan to live there for another 4 years, then it's not beneficial to refinance because you will not be recouping your costs prior to selling the home.

Be Aware of Possible Prepayment Penalties from Your Existing Mortgage

To deter a borrower from selling or refinancing their loan as soon as rates drop, lenders will throw a prepayment penalty into the mortgage loan if the borrower pays back the loan earlier than the original terms called for. It's important to know that there are two types of prepayment penalties: soft prepayment penalties and hard prepayment penalties.

A soft prepayment penalty is given only in the event that a house is refinanced before the time period is up. The home could be sold at any time after the close of the first loan without incurring the extra fees. On the other hand, a hard prepayment penalty, which is more common, is given regardless of whether the note is paid off as a result of a sale or refinance before the set time has lapsed.

In most cases, prepayment penalties won't hurt you because it's unlikely that you'll pay off your $200,000 home loan in three to five years. However, refinancing a mortgage from one with a higher to a lower interest rate technically counts as paying off your loan. To refinance from one loan to another, you are paying off the original mortgage. If you do this within the penalty period, you'll have to pay the prepayment charges.

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*14 business day guarantee only applies to purchase transactions. This guarantee does not apply to Reverse Mortgages, FHA 203k, VA, Bond, MCC, loans that require prior approval from an investor, or brokered loans. The guarantee does not apply if events occur beyond the control of New American Funding, including but not limited to; appraised value, escrow or title delays, 2nd lien holder approval, short sale approval, or lender conditions that cannot be met by any party. The 14 business day trigger begins when the borrower’s initial application package is complete and the borrower has authorized credit card payment for the appraisal. If New American Funding fails to perform otherwise, a credit of $250 will be applied toward closing costs.